Unlocking Phase 2 of the School-Based Nursery Capital Grant Funding: Key Insights for Schools and Academies

Key Changes in Phase 2

Flexibility in Space Use: Unlike Phase 1, schools are no longer limited to surplus space. New builds, extensions, and remodelling are now eligible, provided they demonstrate value for money.

Focus on Disadvantaged Areas: Applications will be assessed heavily on deprivation data, with 50% of the scoring based on Free School Meals (FSM) and Income Deprivation Affecting Children Index (IDACI) metrics.

Mandatory Local Authority Approval: Schools must obtain a signed approval form from their Local Authority, adding an essential step to the process.

Eligibility Criteria

Schools funded in Phase 1, special schools and Pupil Referral Units are ineligible.

Projects must deliver a net increase in childcare places, operational by September 2027, with at least five new places (exceptions apply in rural areas).

Some of the legal issues to think about:

Governance and Compliance:

Governing bodies or trust boards must approve the project and align it with long-term strategies. Initial consideration needs to be given to the question of viability and appropriate governance and corporate structures.

Property and Land Use:

Landowner Consent: Written consent is required from landowners (e.g., local authorities, trusts, dioceses).

Planning Permission: New builds/extensions may need planning approval, and projects must be insured.

General Consent Order (GCO): Changing school land use or disposing of school land may require Secretary of State consent. The school land general disposal and change of use (childcare) class consent 2024 provides blanket approval for certain cases. If not applicable, a Form N application must be submitted to the DfE where consent is required. This is a streamlined application and the form can be found here Submit a school land transaction proposal - GOV.UK.

Employment, TUPE and pensions:

Some private nurseries already operate from school premises. If schools decide to bring nursery provision in-house this is likely to trigger TUPE obligations requiring consultation with current staff. Those staff will be entitled to transfer to the school on their existing terms and conditions. The school will therefore have limited ability to determine its own package of employment terms for transferring staff and will need to take legal advice if any changes are contemplated.

In addition, it is a requirement of the Academy and Free School Master Funding Agreement that all staff other than teaching staff have access to the Local Government Pension Scheme (LGPS). Moving transferring staff from an occupational pension scheme to the LGPS may incur additional costs that increases the costs of the overall employment package.

Significant changes approval and funding agreement variations

Academies must address 'significant changes' within their application and confirm whether the project qualifies as a significant change, including evidence of a minimum three-week consultation period if applicable. The types of significant change can vary from project to project but might include for example:

a change in the age range of the school/ a change in the number of nursery places available.
a decrease in the capacity available for statutory school age children (note that this might be accompanied by a reduction in the PAN which would need to be dealt with in line with the Schools Admissions Code).

For academies applying in this phase 2, the DfE has consolidated the requirement to apply to DfE for approval to make a significant change relating to a new or expanded nursery with the capital bidding process. The two applications will therefore be considered side by side.

Once approval has been secured, a deed of variation is then required to implement the relevant significant change to the funding agreement.

Maintained schools are no longer required to follow the statutory 'prescribed alteration' process to change their age range to add, remove or change existing nursery provision (although they should still consider whether the proposal results in another prescribed alteration).

That's not to say that there aren't obligations on them under the Prescribed Alterations Guidance. The guidance includes a list of requirements for the governing body including for example, the need to carry out an open and fair consultation.

Ofsted Compliance:

When applying for school-based nursery capital grant funding, it is essential that schools demonstrate compliance with Ofsted registration requirements as outlined in the Department for Education’s guidance, 'Registering and inspecting school-based provision'. Early years and childcare providers are required to register their provision unless:

The provision is made at the school as part of the school's activities;
The provision is made by the proprietor or a person employed to work at the school; and
At least one of the children is a registered pupil at the school.

If any of these conditions are not met - particularly in cases where provision includes children under two years old and at least one child attends for more than two hours a day - registration on the Early Years Register and/or the General Childcare Register may be required. Schools must also ensure that all early years provision, whether registered or exempt, complies with the statutory Early Years Foundation Stage framework.

Nursery Admissions Policies:

Noting the changes which came on 1 April under Early Education and Childcare Statutory Guidance, nursery admissions policies need to be checked against this guidance to ensure compliance.

Practical Tips for Schools

Prepare a Strong Application:

Provide evidence of demand (e.g., parental surveys, waiting lists).
Demonstrate financial sustainability with detailed cost breakdowns.

Engage Stakeholders Early:

Secure Local Authority approval.
Consult parents, staff, and the community to build support.

Plan Thoroughly:

Develop detailed floor/site plans and risk registers.
Account for timelines for planning permissions, consultations, and DfE approvals.

Meet Deadlines:

Submit complete applications by 5 pm on 11 December 2025. Late or incomplete submissions will not be considered.

Conclusion

Phase 2 of the SBN Capital Grant presents a valuable opportunity for schools to expand nursery provision, particularly in disadvantaged areas. However, careful planning, early stakeholder engagement, and strict compliance with governance, property, and employment regulations are critical to success.